October 3, 2024

Portfolio Changes: Novo Nordisk (NVO) – Move from Hold a Half to Sell

PDD Holdings (PDD) Surges 32% in Two Weeks and Morgan Stanley China A Share Fund (CAF) Jumps 21.4% in One Week

China’s benchmark CSI 300 index has surged 25% in the five days following Beijing’s stimulus measures to unleash its economy and financial markets. This has led to some catch-up growth for Explorer stock and fund recommendations.

The action was not limited to just Chinese stocks but also stocks looking to China for growth. I mentioned commodities last week, but another winner was the luxury business.

LVMH CEO Bernard Arnault lost more wealth this year than any other billionaire, but the French tycoon’s net worth jumped by $17 billion to $201 billion as his LVMH stock holdings jumped by about 10% on prospects for luxury good purchases by Chinese consumers.

Meanwhile, China is leaning on Chinese companies to stay away from Nvidia chips in tune with the nation’s effort to expand its semiconductor industry and counter U.S. sanctions.

As commodities have shown life on hopes of higher Chinese growth, keep in mind that 80% of the metal and mining industry’s revenues have come from just five materials: steel, thermal coal, copper, gold, and aluminum, according to McKinsey.

Steel and thermal coal alone account for up to 70% of revenues, with annual production volumes of 7 billion tons of coal and 2 billion tons of steel.

The U.S. inflation spurt has led to a troubling trend of labor disputes as unions seek catch-up wages. Boeing is one strategic company facing a strike and this week, seeking 77% wage increases over six years and a limit on automation, the International Longshoremen’s Association, representing 45,000 dockworkers at East Coast and Gulf Coast ports, shut down some of the country’s main ports.

Nuclear power continues its resurgence as a new Energy Department memo projects that up to 25 gigawatts of new data center demand could hit markets by 2030. This is massive and equal to the output of about 29 average-size nuclear power plants.

Explorer Weekly Stock Commentary

Below is a brief update on each Explorer stock. Any changes in ratings will be highlighted. This section is all you need to read each week.

Explorer Disrupter Recommendations – need to watch more closely and have 20% trailing stop-loss in place

Centrus Energy (LEU) shares followed last week’s 38% surge with a 16.8% gain this week, giving the stock a 53.4% gain for the last three months as nuclear energy has become a leading growth theme. The company also has benefited from a supply agreement with Korea Hydro & Nuclear Power for a decade of low-enriched uranium deliveries to feed Korea’s reactors. Centrus is at the middle of this growth as a diversified supplier of nuclear fuel and services for nuclear power plants in the U.S. and globally. Buy a Half

Cloudflare (NET) shares were down 4.9% after a 6.8% gain last week. Cloudflare reported revenues of $401 million for the current quarter, up 30% year on year, though the stock is not yet delivering a net profit. Recently, it announced Speed Brain, a new product that works with some of the most popular web browsers to speed up how webpages load by up to 45% faster, for free. Cloudflare currently delivers services in over 120 countries and is both a cloud and cybersecurity play. Buy a Half

Dutch Bros (BROS) shares were largely unchanged this week as the company opened 36 new shops in the second quarter, driving revenue up 30% year over year. It has a lot of potential for growth, ending the most recent quarter with 912 locations in just 18 states. The stock is trading about 10% below its initial public offering (IPO) price in 2021 despite doubling its store count and tripling its sales since 2020. Buy a Half

MOOG (MOG-A) shares were up slightly in the stock’s first week as an Explorer recommendation. MOOG supplies advanced primary flight controls on the most modern military aircraft. That includes the Lockheed Martin F-35 Lightning II and the Future Long Range Assault Aircraft program. The company also supplies primary flight controls for the Boeing 787 and Airbus A350 widebody aircraft, as well as business and regional jets from Embraer (ERJ) and Gulfstream, owned by General Dynamics (GD). Buy a Half

Novo Nordisk (NVO) shares were down 8.2% this week and I have concluded the stock has lost its momentum as it faces increased competition and pressure to reduce its prices in the United States, its chief profit center. In the U.S., the list price for Ozempic is $968 for a month’s supply. The cost of these popular medications is cheaper in other countries. For example, Ozempic is just $59 in Germany and Wegovy is only $92 in the U.K. Some analysts estimate that 72% of Novo Nordisk’s revenue since 2018 come from U.S. sales. We have already taken some profits in this stock which had a good run earlier this year. Now, let’s book profits on the whole thing before it sinks any lower. Move from Hold a Half to Sell

PDD Holdings (PDD) shares jumped 32% in the last two weeks following the announcement of China’s stimulus plan to get its economic growth and stock market back on track. From 2023 to 2026, analysts still expect PDD’s revenue to grow at a compound growth rate of 38%. This an aggressive growth stock that still represents a blend of value and growth. Buy a Half

Sea Limited (SE) shares were steady this week after last week’s 10.5% gain and after being up more than 35% in the last quarter. With a 133% gain this year, Sea Limited revenue has surged at least 20% in all three of its segments in its latest quarter. Its Shopee e-commerce arm has a 48% market share in Southeast Asia. Buy a Half

Explorer Dominator Blue-Chip Recommendations – More Buy and Hold

International Business Machines (IBM) shares are up 25% over the last three months as the company delivers a strong cash flow driven by software, consulting, and infrastructure, as well as accelerated AI adoption consulting. Buy a Half

Unilever (UL) shares are up 35% in 2024 as the company delivers an impressive 32% return on equity as it highlights management’s ability to effectively manage capital. The stock is a great multinational core holding. Buy a Half

Visa (V) shares were up 2.7% after some recent turbulence due to a recent U.S. Justice Department action to sue Visa, alleging the global payments giant illegally monopolized the debit-card market. How this turns out is hard to tell at this point but the company reported an operating margin of 67% in its fiscal 2024 third quarter ended June 30. Buy a Half

Watch List – past recommended stocks that I still like and keep an eye on.

BYD (BYDDY), ConocoPhillips (COP), Franco-Nevada (FNV)

Explorer ETF/Fund Positions

Aberdeen Asia-Pacific Income Fund (FAX) is a close ended fixed income mutual fund launched and managed by Aberdeen Standard Investments (Asia) Limited in Singapore. Buy a Half

Grayscale Bitcoin Trust (GBTC) offers investors a way to track very closely to the day-to-day or “spot” movement of bitcoin prices. For aggressive investors comfortable with volatility. Buy a Small Allocation

iShares MSCI India Small-Cap ETF (SMIN) is a $960 million fund that holds a basket of about 500 small-cap India stocks. It is nicely diversified with the top 10 stocks accounting for just 12% of assets. The lead sector is industrials at 25%, followed by finance at 15%, consumer goods at 14%, basic materials at 13% and healthcare at 10%. Buy a Half

JPMorgan Equity Premium Income ETF (JEPI) offers double-digit yield coming from both option premiums and dividends using a value-focused strategy. Buy a Full

Morgan Stanley China A Share Fund (CAF) offers exposure to a basket of the largest Chinese-listed stocks. It’s up 21.4% in the last week – and 29% in the last two weeks – thanks to China’s myriad stimulus measures. Buy a Half

Oberweis Micro-Cap Fund (OBMCX) fund stands out for several reasons. The fund’s sound investment process and strong management team earn it a rare Morningstar Medalist Rating of Gold. Over the past five years it has posted an impressive average annual return of 18.9%. Buy a Full

WisdomTree Emerging Markets High Dividend Fund (DEM) offers a high dividend yield and some of the highest quality emerging market stocks. Buy a Half

WisdomTree’s Japan Hedged Equity ETF (DXJ) offers exposure to a broad basket of dividend-rich Japanese stocks hedging for yen currency fluctuations. Buy a Full

Explorer Stocks Summary

Brief company summaries that will not change week to week.

Watch List: BYD (BYDDY) switched to producing only all-electric battery vehicles (BEVs) and plug-in hybrid electric vehicles (PHEVs). The company also manufactures and supplies EV batteries, including to Tesla, and makes its own chips. This is vertical integration that would make Henry Ford proud. BYD is in a strong position to be one of, if not the leader of the EV revolution in terms of size, scale, and growth.

Centrus Energy (LEU) based in Bethesda, Maryland, supplies nuclear fuel and services for the nuclear power industry in the United States, Japan, and Europe. Centrus Energy is building an enrichment facility in Ohio and would be very likely to benefit especially if federal funding moves forward to support this and other nuclear projects. I believe Centrus stock will benefit from increasing demand for its services, and that downside risk is low while upside potential is significant.

Cloudflare (NET) is both an aggressive and dominator recommendation offering products and services in four cutting-edge fields, though cloud computing is its bread and butter. Its global reach is breathtaking as 20% of all web traffic runs through Cloudflare’s network and over 95% of internet users from 180 countries worldwide access the company’s services each day. And it reaches these users within 50 milliseconds. The firm’s client list includes more than 30% of Fortune 1000 companies and the ability to efficiently move and connect data – from where it is located to where it is needed (edge computing) – is a massive business opportunity in which Cloudflare already excels.

Watch List: ConocoPhillips (COP) is a global energy industry giant and one of the largest independent exploration and production (E&P) companies in the world, as measured by production levels and proved reserves. The company, founded in 1917 and based in Houston, has operations in 13 countries, although almost half the company’s production is derived from U.S. sources.

Dutch Bros (BROS) is an operator and franchisor of drive-through coffee stores. The company has more than 900 stores as of the end of the second quarter, including 36 that it opened in the quarter. It’s expanding at a steady pace, expecting up to 165 new stores this year, and it envisions up to 4,000 stores over the next 10 to 15 years.

Watch List: Franco-Nevada (FNV) is a company with more than half of its revenue coming from gold, but it also offers exposure to platinum, silver, and oil and gas. Franco-Nevada’s focus on royalties and streaming reduces risk and enables it to sidestep the huge capital costs that impact traditional miners. It enjoys cash flow and profits as its mining partners finance and complete exploration and expansion projects. That cash flow enables it to invest in new deals, pay a dividend, and operate debt free. Franco-Nevada has increased its dividend each year since its IPO in 2008.

International Business Machines (IBM) is a blue-chip artificial intelligence (AI) and India play with a nice dividend yield. Known as “Big Blue,” IBM now primarily helps businesses and governments manage their information technology in the cloud era. The stock sells at a discount to the S&P 500 multiple and the information technology sector’s forward earnings multiple. IBM has paid a dividend every quarter since 1916 and has had 28 consecutive years of dividend increases.

MOOG (MOG-A) supplies advanced primary flight controls on the most modern military aircraft. That includes the Lockheed Martin F-35 Lightning II and the Future Long Range Assault Aircraft program. The company’s major platforms include the 787, A350, Joint Strike Fighter (F-35 Lightning II). The company also supplies primary flight controls for the Boeing 787 and Airbus A350 widebody aircraft, as well as business and regional jets from Embraer (ERJ) and Gulfstream, owned by General Dynamics (GD).

PDD Holdings (PDD) is growing much growing faster than its competitors. Its return on equity is a stunning 49%. PDD was only founded nine years ago (as Pinduoduo), and it has carved out a niche with its discount marketplace, which targeted shoppers in China’s lower-tier cities. From 2023 to 2026, analysts still expect PDD’s revenue to grow at a compound growth rate of 38%. That growth should be driven by its market share gains in China and by Temu, its cross-border marketplace that connects Chinese sellers to overseas buyers. This is a competitive market in China watched closely by regulators.

Sea Limited (SE) has three core businesses: 1) digital gaming/entertainment, 2) e-commerce, and 3) digital payments and financial services, known as Garena, Shopee, and SeaMoney, respectively. Garena is a leading global online games developer and publisher. Shopee is the largest e-commerce platform in Southeast Asia and Taiwan. SeaMoney is a leading digital payments and financial services provider in Southeast Asia.

Unilever (UL) is a dominant consumer goods giant with a trove of 400 recognizable brands in its diversified portfolio – from Vaseline to Dove – that it sells in over 190 countries. However, 30 “power brands” account for almost 75% of Unilever’s total sales. It is a steady, stable stock for an uncertain environment and for a change, its stock is selling at a rare discount, trading at just over two times sales. Two other reasons I like Unilever are that 78% of its sales are outside North America and almost 60% are from emerging markets that offer higher consumer sales potential due to better demographics.

Visa (V) doesn’t extend credit but provides the plumbing for financial payments and communications throughout the world. Visa’s financial infrastructure also underpins much of the world’s commerce. The duopoly between Visa and Mastercard is often referred to as one of the best businesses in the world, with insurmountable moats, low operating costs, and plenty of opportunities for unlocking additional value. Visa currently trades at a discount to its archrival MasterCard.

Currently Open

ETFs

Copyright © 2024. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.